Remember the dot-com bubble?
If so, you’ll appreciate this week’s notable event: The NASDAQ Composite Index, which includes a fair number of technology stocks, transcended its previous high (set in March 2000). Share values in the tech sector gained 4 percent last week, according to Barron’s, as major players in the space delivered better-than-expected earnings results.
The performance of technology stocks has some wondering whether this tech boom will be like the last one. In the go-go 90s, technology start-ups attracted hundreds of millions in venture capital funding. Some, like not-very-memorable fashion retailer Boo.com, burned through $135 million of venture capital and went belly up the year after it launched. Others, like TheGlobe.com, a social network service with no earnings, went public in 1998 with a target share price of $9. Investors paid as much as $97 a share during the first day of trading. By the end of 2000, the stock price was worth less than a dollar a share.
Things are different this time around, according to Financial Times, largely because a lot more economic activity takes place online today. About $50 billion is spent on online advertising in the United States (compared to $8 billion 15 years ago) to reach an audience of three billion people (compared to 400 million in 2000). The business paradigm has changed, too, according to Financial Times:
“This time around, many [companies] are being built to be sold to one of a handful of cash-rich acquirers… in the consumer internet markets, or… in enterprise software. In fast growing fields such as artificial intelligence, backers of more mature start-ups complain about the excess of early-stage venture capital flooding in, from investors hoping to sell out quickly to one of the giants.”
The Dow Jones Industrial Average and the Standard & Poor’s 500 Indices showed gains last week, too.
* This article first appeared in our weekly email newsletter. To subscribe to the Ruggie Wealth Management Weekly Commentary email firstname.lastname@example.org or call us at 352.343.2700